Dirk Meyer, chief executive of Advanced Micro Devices, said Friday the chipmaker plans to "ramp up" production of next-generation 32-nanometer processors in the middle of next year with volume production starting in the fourth quarter.

Meyer discussed the production plans during a 30-minute interview with InformationWeek that touched upon a variety of subjects. In rolling out the smaller, more powerful processors next year, AMD will be months behind Intel, which plans to begin production of 32-nm products in the fourth quarter of this year.

The number refers to the size of the circuitry on the chip. The latest processors shipping today from Intel and AMD use 45-nm components. Reducing the size of the circuitry leads to more powerful processors without increasing energy consumption. A nanometer is a billionth of a meter.

AMD typically follows the far larger Intel by six to 12 months in shipping next-generation products, so the timetable for its 32-nm chips is not out of the ordinary. What is different this time around is that the new processors will be designed, but not built, by AMD.

On March 2, AMD closes its deal with Advanced Technology Investment Co., formed by the Abu Dhabi government, to spin off the chipmaker's manufacturing operations into a joint company, temporarily called the Foundry Co. The deal is expected to move $1.1 billion in debt, most of it associated with AMD's Dresden, Germany, manufacturing operation, off of AMD's books, Meyer said. In addition, the company gets a cash infusion from its partner of about $800 million, and AMD will no longer have to spend $1 billion to $2 billion a year on capital investments in fabrication plants.

All of this is key to AMD's strategy toward reversing a string of quarterly losses that have amounted to several billions of dollars. In the fourth quarter of last year alone, AMD reported a loss of $1.4 billion.

Meyer is confident that the Foundry Co. will dedicate the needed resources to AMD, which will be its largest customer and will own more than a 34% share. The CEO points out that AMD's graphics chips that stem from the 2006 acquisition of ATI Technologies are made by Taiwan Semiconductor Manufacturing.

"We've been actually impressed to see the quality and depth of the relationship a fabless company can have with its partners," Meyer said.

While some graphics production may shift to the Foundry Co., AMD plans to stick with TSMC for key manufacturing processes. "We'll do that [shift production] to some degree over time, but we still intend to maintain a good relationship with TSMC," Meyer said. "Fabless businesses routinely maintain more than one supplier, and the reason for that is you always want competition in your supplier base. This isn't new for our graphics business."

As a fabless company, AMD isn't planning to change its current product strategy. Similar to the shift to 32-nm chips, AMD isn't in a race with Intel on all technologies. Instead, the smaller chipmaker focuses its research and development on server and notebook products, Meyer said. Technology developed for servers are adapted for high-end desktops, such as gaming systems, and notebook products are adapted for low-end and mainstream desktops.

One emerging category of low-end notebooks AMD will stay out of, at least for a couple of years, is netbooks, typically defined as having screen sizes of less than 10 inches. With prices of the systems as low as $300, the profit margin isn't sufficient today to attract AMD, Meyer said.

The same holds true for making chips for smartphones, such as the Apple iPhone. AMD in January sold its handset chip division to Qualcomm for $65 million. "The reason we did that is because chip suppliers focused on that space are large in number, they're all big, and none of them are making money," Meyer said.

In battling Intel, Meyer believes AMD's sweet spot will be in offering a combination of CPU and ATI graphics chips for ultraportable PCs, the 13-inch Apple MacBook Air being a good example, as well as for larger notebooks and desktops. In the ultraportable category, defined as light and thin laptops generally under 15 inches but with full-size keyboards, AMD this year introduced the Yukon platform, comprised of an Athlon Neo processor, ATI Radeon X1250 integrated graphics, and an optional ATI Mobility Radeon HD 3410 discrete graphics cards.

AMD plans to follow Yukon with a series of chips code-named Congo, Nile, and Ontario, respectively, Meyer said. Each subsequent platform will be smaller, cost less, have higher performance, and consume less energy than the previous. These products will be adapted for "big and little notebooks," Meyer said.

While ATI over the years has cost AMD billions of dollars in charges that has drastically reduced profits, AMD is confident the graphics technology it obtained eventually will pay off.

One area ATI technology is likely to help AMD is in its notebook platform, which benchmarks show has a slower CPU than Intel's. While AMD's processor may be slower, it doesn't matter because in combination with the ATI technology, the platform delivers better graphics and video on the PC, Meyer said.

"The way in which consumers and businesses ought to gauge the value of the PC or notebook shouldn't be in performance benchmarks, because those benchmarks do not reflect what people do with the PC," Meyer said. "It's not just about the CPU. People can get distracted by how fast is the CPU, and then have a lousy graphics experience when they get home."

New x86 processors from Intel and AMD are paving the way for improved virtualization. InformationWeek has published an independent analysis of this topic. Download the report here (registration required).

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